Markets crash over 2%: Key factors driving the selloff

Stock Market Today:

Indian markets slumped further on March 4 after fire broke out at Europe's largest nuclear plant following Russian strikes in the Ukrainian facility, inducing concerns of a larger disaster.

According to Ukrainian foreign minister Dmytro Kuleba, if the facility blows up, it will be 10 times larger than Chornobyl disaster.

The conflict in Ukraine could reduce the level of global gross domestic product by about 1 percentage point by 2023 and add 3% to global inflation this year, according to U.K.’s National Institute for Economic and Social Research, with Europe more exposed than any other region.

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According to Motilal Oswal Securities, the weakness in market is expected to continue in near term given escalating Russia-Ukraine conflict and surging crude and commodity prices. Upcoming state election results and US Fed meeting over next two weeks would further add to the volatility. If the crude and commodity prices continue to surge or remain high for longer, it may impact margins and earnings of various sectors. Thus, sectors benefitting from high commodity prices are likely to stay in flavor. While sectors heavily impacted from high prices are expected to remain under pressure. Thus, till the prices don’t cool off, one can look at sectors such as oil & gas and metals while IT can be looked at from defensive perspective as it benefits from depreciating rupee, the brokerage firm said.

Investors will await US job data which will be announced later today. The jobs report is likely to be strong given low jobless claims and a strong ADP print. Headline NFP print is expected to be at +420k. US Feb ISM services print yesterday though had disappointed.

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At 11:40am, the benchmark Sensex was at 54,162.13, down 940.55 points or 1.71 percent, while Nifty lost 296.35 points or 1.80 percent at 16,201.70 points.

Here are the key factors driving the selloff today.

1. Fire at nuclear plant: Continued increased in tensions between Russia anf Ukraine have kept markets under pressure. According to news report,  fire broke out at the  Zaporizhzhia nuclear power plant - the largest of its kind in Europe - after an attack by Russian troops which accounts for 20% of the Ukrainian electricity supply. The fire has not reached the essential part of the reactor yet but risks of nuclear leakage remain.

"The war and surge in crude has completely transformed the economic scenario and market expectations. If the war prolongs global economic growth may be impacted. In India, both the government and RBI had assumed crude price of around $75 and, therefore, projections in the budget and monetary policy have to be revised materially. Even if crude price declines and stays around $100, inflation for FY23 will be much higher than RBI's forecast. MPC will be forced to raise rates and this will impact the economic recovery underway", said   Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

2. French President Macron says worst is yet to come:  Worst is yet to come...' French President Emmanuel Macron was quoted as saying by his aid after having a conversation with his Russian counterpart Vladimir amid Ukraine's invasion on Thursday. As per the aid, Putin told Macron that the continuity of the war was at a 'pace he wished for', and added that he was determined to carry out the ongoing war until 'the end', according to news reports.

3. Widening India's trade deficit:  The merchandise trade deficit widened to $21.2 billion in February from $17.9 billion in January, primarily driven by a sharp rise in oil imports and higher core imports, as the economy recovered from the third wave. Exports growth remained strong, but it was not enough to offset the import surge. Rising prices of oil and broader commodities, especially aggravated by the ongoing Russia-Ukraine conflict, are likely to further add to the import bill in the coming months, while we see marginal downside risks to exports due to weaker demand from Russia and potentially from global spillover effects, if that occurs, Nomura Research report said. The brokerage firm expect the current account deficit to widen to 2.6% of GDP in FY23 (year ending March 2023) from 1.7% of GDP in FY22, and see potential for an even wider deficit.

4. FMCG sector sees slowdown: India’s packaged fast moving consumer goods witnessed volume slowdown in urban markets and de-growth in rural India last year, severely impacted by inflation, NielsenIQ said in its quarterly FMCG update. In the quarter ended December, rural markets saw 4.8% consumption degrowth, while urban markets degrew 0.8%. Overall, the FMCG industry saw consumption de-growth of 2.6% due to inflationary pressures and other macroeconomic factors.